Alberta's NDP government isn't shutting down the oil roller coaster. It's just giving it some upkeep and a coat of orange paint.
Much of the arithmetic that goes into Finance Minister Joe Ceci's new budget is driven by an expectation that crude prices will take years to recover. Embedded in that is hope that they won't. Either way, crude plays a huge role.
The document features a current-year deficit of $10.4-billion, and through 2019, there is no magic new revenue source to take the place of energy. Despite much talk, meaningful economic diversification is years away. So, absent a rebound in the energy industry, a major beneficiary is the bond market.
The end of Alberta's aversion to debt was apparent in Mr. Ceci's interim financial plan last autumn (and, to be fair, in the budgets of a number of previous Progressive Conservative finance ministers). What's so startling now is just how far the NDP government's distaste for cutting services has driven it down the road to increasing indebtedness.
Mr. Ceci had recently abandoned an end-of-decade budget-balancing target, and said on Thursday that his new goal is 2024, stressing that he does not want some deadline to force him to make draconian spending cuts during the toughest times in a generation.
Now, he's ash-canned a debt-to-GDP limit of 15 per cent that he had introduced just six months ago to assure Albertans that the borrowing would not surge out of control.
In recent weeks, Mr. Ceci and Premier Rachel Notley had been straightforward with Albertans about how much pressure the collapse in oil prices is putting on public coffers. Meanwhile, both have talked often about how taking a cleaver to budgets for health, education and social services – as former Conservative premier Ralph Klein did in the 1990s – would only make life worse for those who are most affected by the economic maelstrom.
They have not overplayed the problem. Revenue for 2016-17 is forecast at $41.4-billion, down 17 per cent from just two years earlier. The energy-sector downturn is the main culprit – non-renewable resource revenue sits at $1.4-billion, down 84 per cent through the same period. There is no expectation that the take from oil and gas will return to pre-bust levels in the next three years.
In previous years, Alberta governments had a multibillion-dollar sustainability fund to apply to any unfunded operational spending. Unfortunately for Ms. Notley and Co., that kitty is empty.
In the absence of big spending cuts, that means the NDP is forced to borrow to make up the shortfall – to the tune of $5.4-billion in this fiscal year, $8.4-billion next year and $6.9-billion the year after. This is on top of a multibillion-dollar debt-funded infrastructure spending binge to help spur the economy.
The government estimates its total financing needs at $14-billion in this year and $20-billion next. In the mid-1990s, Mr. Klein launched deep spending cuts in the name of paying off a $23-billion debt load. Mr. Ceci said Albertans are still feeling the impact of that era.
His budget assumes an average $42 (U.S.) per barrel benchmark crude price, which is close to today's level (though a worst-case scenario in the budget sees crude averaging $36). The government foresees natural gas at $2.40 (Canadian) per gigajoule, well above recent values, and a return to gross domestic product gains in 2017 after two years of contraction.
Mr. Ceci is adamant that Alberta's balance sheet will remain the strongest in the country, despite the rising debt and uncertain revenue outlook.
His scrapped legislated debt ceiling was coincidentally the upper limit that some credit rating agencies had said would allow Alberta to hang on to its triple-A rating. One, Standard & Poor's, didn't wait for the burden to get near that level; in December, it handed Alberta a downgrade.
The new budget puts it at 9.6 per cent. By 2018-19, the percentage is estimated to climb to 15.5. There is no public estimate for what happens after that.
Expenses are on track to keep climbing – from $51-billion to $56-billion two budgets from now. That means a recovery in the energy sector is pretty much the only thing that can slow down the borrowing.
Ms. Notley has been pushing ever more forcefully for other governments to support the oil industry's push for new oil pipelines that would provide access to more lucrative markets, even seeking to school the federal wing of the NDP on the issue.
Her government's budget leaves no doubt why.